ASIC today released new financial requirements for responsible entities (REs) of managed investment schemes (MISs).
The changes, implemented through Class Order (CO 11/1140]) and outlined in updated versions of Regulatory Guide 166 Licensing: Financial requirements (RG 166) and Pro Forma 209 Australian financial services licence conditions (PF 209), aim to ensure REs have adequate resources to meet operating costs and there is appropriate alignment with the interests of investors.
‘To help ensure confident and informed investors, schemes wanting to take on the responsibility of managing investors’ money must be backed by REs with appropriate financial substance,’ ASIC Chairman Greg Medcraft said.
‘As Australia raises its profile as a leading financial centre, increasing minimum responsible entity capital requirements to a level that is globally comparable improves confidence in the integrity of our markets.’
Under the changes - which are the first significant changes in more than a decade to the rules covering financial requirements for MISs - REs must prepare 12-month cash-flow projections which must be approved at least quarterly by directors.
To meet the new net tangible asset (NTA) capital requirements, REs must hold the greater of:
- $150,000
- 0.5% of the average value of scheme property (capped at $5 million), or
- 10% of the average RE revenue (uncapped).
A liquidity requirement has also been introduced where an RE must hold at least 50% of its NTA requirement in cash or cash equivalents, and an amount equal to the NTA requirement in liquid assets.
The updated versions of RG 166 and PF 209 are appendices to Report 259 Response to submissions on CP 140 Responsible entities: Financial requirements (REP 259).
Download:
- Class Order (CO 11/1140) Financial requirements for responsible entities
- Report 259 Response to submissions on CP 140 Responsible entities: Financial requirements (REP 259).
- Appendix 1 to REP 259: Draft RG 166 Financial requirements, including financial requirements for REs that will apply from Nov 2012
- Appendix 2 to REP 259: Draft PF 209 AFS licence conditions that will apply from Nov 2012.
- Regulatory impact statement
Background
ASIC is giving existing REs until 1 November 2012 to comply with the new financial requirements. Although the aforementioned documents are available on ASIC’s website, the new requirements for REs will not come into effect until the end of the transition period.
If REs that are RSE licensees are required to meet the new financial resource requirements as a part of the Stronger Super reforms, ASIC will consider if amendments to the updated financial resource requirements are appropriate, having regard to ASIC’s objective that the financial resource requirements reflect the operational risks of REs.
Editor's note:
On 1 October 2012 ASIC issued Class Order [CO 12/1295] Variation of Class Order [11/1140], refining the financial requirements for responsible entities (REs) which were released in November 2011 in Class Order [CO 11/1140].
The changes clarify the NTA requirement that applies to Australian financial services (AFS) licensees which are not operating a registered managed investment scheme (despite being authorised to do so), and makes clarificatory changes to the custody requirements relating to the NTA financial requirement and the definitions of adjusted liabilities, average RE revenue, special custody assets, stapled issuer and value of scheme property, which affect licensees' NTA calculations.
The updated requirements come into effect on 1 November 2012, in line with the expiration of the transition period set out in [CO 11/1140].
Guidance in relation to the updated financial requirements for REs will be available in an updated version of Regulatory Guide 166 Licensing: Financial requirements (RG 166), which will be released when the new financial requirements come into effect. An updated Form 70 Australian financial services licensee profit and loss statement and balance sheet will also be released late December 2012.